PaymentsJournal
No Result
View All Result
SIGN UP
  • Commercial
  • Credit
  • Debit
  • Digital Assets & Crypto
  • Digital Banking
  • Emerging Payments
  • Fraud & Security
  • Merchant
  • Prepaid
PaymentsJournal
  • Commercial
  • Credit
  • Debit
  • Digital Assets & Crypto
  • Digital Banking
  • Emerging Payments
  • Fraud & Security
  • Merchant
  • Prepaid
No Result
View All Result
PaymentsJournal
No Result
View All Result

Sezzle Sizzles: California Lending License Rejected

By Brian Riley
January 2, 2020
in Analysts Coverage, Credit, Merchant, Point-of-sale
0
1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn
Marketplace Lending: LendingClub Flounders, is the Market Still Viable?

Marketplace Lending: LendingClub Flounders, is the Market Still Viable?

Australian-based point of sale lender Sezzle, with offices in Minnesota and aspirations for the U.S. market, saw their lending license rejected. Instead of diverting credit card transactions through its small loan operation, the unlicensed lender must now reconsider its business strategy.

Following the decision, Sezzle stock plummeted.  The encouraging public offering, which “raised $40 million in an IPO” on the Australian Stock Exchange, fell 40%, as reported by the New York Times. The California Department of Business Oversight (DBO) denied a lending license to point-of-sale lender Sezzle “after determining the Minnesota-based fintech company had engaged in illegal unlicensed lending in the state.”

In a 10 page decision, DBO pointed to four important issues.

  • Sezzle has not previously applied for a license to lend in California because Sezzle does not consider its financing product a loan.
  • Rather, Sezzle contends that “[w]ith respect to California consumers, Sezzle purchases credit sale contracts from merchants who sell goods to consumers.” 
  • Sezzle further contends that it’s purchases of credit sale contracts do not constitute loans under California law and, thus, are not subject to the CFL.
  • The Commissioner disagrees and seeks to deny Sezzle’s Application due to Sezzle’s making of loans to Californians without a license.

Because a loan is a loan, a fintech may not redefine the standards.

  • It is a violation of the CFL to “engage in the business of a finance lender . . . without obtaining a license from the commissioner.”  (Id., § 22100, subd. (a).)
  •  A finance lender “includes any person who is engaged in the business of making consumer loans . . . .”  (Id., § 22009.)
  • A consumer loan “means a loan . . . the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes.”  (Id., § 22203.)
  •  Put simply, a loan is a “grant of something for temporary use,” and the business of lending money is the business of providing temporary use of money.

Banking has overhead, liquidity standards, and reporting requirements.  It is not fun,  but everything plays into two principles: Safety and Soundness.  Pity the lender that does not comply.

The New York Times reports:

  • The company’s troubles are latest in a line of problems  buy-now-pay-later (BNPL) firms have been facing.
  • Companies like Sezzle, which give young shoppers easy credit to spend online, have gained popularity, but their mode of operation attracts scrutiny, with regulators arguing whether such credit should be treated as a bank loan.
  • In Australia, regulators have questioned the business model and accused Afterpay – considered an industry bellwether – of non-compliance with money-laundering laws.
  • The country’s central bank is also scheduled to review the payments industry this year.
  • Afterpay, however, said in a statement that it received the California lending license six weeks back, sending its shares up 4.6%. It did not specify what it did differently to get it.

As we said in a recent Mercator Advisory Group Viewpoint, “Credit Card Lenders: Hone Strategies and Do Not Let Fintechs Scare You.”  Fintech may be exciting, but lenders still need compliance guardrails to stay out of trouble.

Overview by Brian Riley, director, Credit Advisory Service at Mercator Advisory Group

1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn
Tags: Alternative LendingMerchantPoint of SaleSezzle

    Get the Latest News and Insights Delivered Daily

    Subscribe to the PaymentsJournal Newsletter for exclusive insight and data from Javelin Strategy & Research analysts and industry professionals.

    Must Reads

    Banking-as-a-service BaaS

    Remodeling Main Street: How Community Banks Can Leverage the Banking-as-a-Service Paradigm

    June 12, 2025
    How Employee Performance Enhances the Customer Experience

    Three Strategies to Maximize Loyalty in the AI-Driven World 

    June 11, 2025
    PFM tools

    How FIs Are Cutting Through Subscription Clutter with PFM Tools

    June 10, 2025
    child identity theft

    Stranger Danger: Protecting Your Children from Identity Theft

    June 9, 2025
    agentic commerce

    The Agentic Advent: How the Next Iteration of AI is Shaping Commerce

    June 6, 2025
    payments hub, digital banking

    All in One: How a Payments Hub Eliminates the Pain Points

    June 5, 2025
    Vertical SaaS

    From Underdogs to Industry Leaders: How Vertical SaaS Powers Mid-Sized Firms

    June 4, 2025
    credit card surcharging

    A Perfectly Understandable Bad Idea: Why Merchants Should Reconsider Surcharging

    June 3, 2025

    Linkedin-in X-twitter
    • Commercial
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Digital Banking
    • Commercial
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Digital Banking
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    • About Us
    • Advertise With Us
    • Sign Up for Our Newsletter
    • About Us
    • Advertise With Us
    • Sign Up for Our Newsletter

    ©2024 PaymentsJournal.com |  Terms of Use | Privacy Policy

    • Commercial Payments
    • Credit
    • Debit
    • Digital Assets & Crypto
    • Emerging Payments
    • Fraud & Security
    • Merchant
    • Prepaid
    No Result
    View All Result